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inventories may use the cash method of accounting only in limited
circumstances:
a taxpayer that is required to use the inventory method of
accounting must meet the substantial-identity-of-results
test in order to show that the Commissioner's determination
requiring a change in its method of accounting was an abuse
of discretion. * * *
The substantial-identity-of-results test requires the
taxpayer to establish substantial identity of result between the
method of accounting used by the taxpayer and the method of
accounting the Commissioner has determined clearly reflects the
taxpayer's income. See id.
Respondent's position in these cases was that petitioners
were required to use the accrual method of accounting because
merchandise was an income-producing factor in IC's business.
Respondent relied on the fact that IC purchased raw
materials used to manufacture its custom-made electric coils and
that the raw material then became a part of these electric coils.
Respondent determined that at a minimum, IC had title to the
electric coils it manufactured before sale to its customers.
Finally, respondent concluded that since raw materials purchased
by IC represented about 45 percent of its gross receipts during
1994, materials were in fact an income-producing factor in IC's
business.
In this regard, respondent relied on Epic Metals Corp. &
Subs. v. Commissioner, T.C. Memo. 1984-322, affd. without
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